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Economic Competitiveness

Whether real or perceived, California is frequently seen as unfriendly to business--with a myriad of complicated (and many times unclear) rules and regulations, it is essential that we work to simplify processes, create the conditions necessary for our regional economies to grow. It is through better leveraging our regions and their industries that California can increase its global economic competitiveness.

2013 Policy Agenda

During this cycle, Coalition members agreed that the Economic Competitiveness Committee would take on infrastructure issues, in addition to more traditional business-friendly initiatives such as regulatory reform and certainty; entitlement process reform (e.g., OSHPD); and CEQA modernization. And for good reason; we simply cannot have a strong, vibrant, robust CA economy and be globally competitive without the critical infrastructure to deliver people, goods, information, energy and water more reliably, safely, efficiently and affordably. But to get the critical infrastructure we need, we must fix the State’s broken infrastructure development, funding, delivery and management process.

Specifically, to fix the state’s infrastructure processes, we must look at expanding our use of innovative – but globally accepted and applied – mechanisms such as:

  1. Increasing the Accessibility to Public-Private Partnerships (P3s)
  2. While P3s play a critical role in global asset formation and specifically in infrastructure project financing, they do not play a leading role in CA even though there are hundreds of billions of dollars of private investment capital available and waiting to be deployed both domestically (e.g., pension funds, commercial banks) and abroad (e.g., sovereign wealth funds) that we can attract to help solve our state’s critical infrastructure deficit. Certainly, California has made great strides during the last half-dozen years in developing a policy framework to permit P3 projects in the state, including the Infrastructure Financing Act (Government Code 5956 (GC 5956)), which expanded the number and scope of projects open to private investment without replacing public works infrastructure programs. However, in a post-redevelopment environment, where local governments have fewer economic development tools at their disposal, more needs to be done not only to clear up ambiguities in GC 5956’s express language and certain unnecessary restrictions undermining GC 5956’s usefulness, but to create a general policy framework that makes it easier to administer, more accommodating (flexible) to manage and less costly to implement P3 programs at the local and state levels.

    Regarding GC 5956 reform, a recent bill, Senate Bill 475 (Wright), which this Coalition supported publicly, issuing a letter in July 2011, died during the last legislative session. SB 475 proposed some clarifying language and structural code changes that included:

    • Clarifies that private sector financing (and capital) can take several different forms, e.g., cash, carrying costs, in-kind contributions, loans, etc.—rather than the more-limiting “investment capital” definition used in the existing statute.

    • Provides greater flexibility in the selection of a private sector financing partner by eliminating the requirement that “demonstrated competence and qualifications” be the primary selection criteria and by adding additional criteria that must be considered, such as technical approach, life cycle-costs and safety record.

    • Clarifies that the public sector has the authority to co-invest in the infrastructure project.

    • Makes clear that there are several types of post-construction operations and “control” methods that the private sector and public sector can utilize—rather than being limited to leasing or ownership. This opens up additional options that may better fit the structure of the partnership.

    • Extends the P3 contract from 35 years to 50 years to help projects “pencil out” financially.

    RECOMMENDATONS:

    Urge the Legislature to take-up P3 legislation once again and at the very least enact legislation that will provide local agencies with greater flexibility and more tools to use P3s to finance and deliver critical infrastructure projects in California. In addition to the some of the GC 5956 changes above, urge legislators to do even more to make P3s more accessible and useful as a major infrastructure financing tool, including, for example: making California pension funds available for P3 investment in infrastructure; implementing the California Environmental Quality Act’s original intent to improve environmental outcomes, while reducing CEQA’s non-environmental uses to reduce project uncertainty and cost (and thus increase ROI) for private participants; and better coordinating public funding sources at all levels (local, state, federal) through an expanded CA I-Bank role.


  3. Other Infrastructure Financing Ideas: Qualified Infrastructure Improvement Bonds & IFD Law Reform
  4. In addition to P3s and related Government Code reforms, there have been several other innovative infrastructure financing ideas put forward recently, including introducing a Build California Bond program – modeled on the very successful qualified infrastructure improvement Build America Bond (BAB) program – as well as instituting some proposed changes to the already existing Infrastructure Financing District (IFD) law (Government Code (GC) 53395) to eliminate some of the law’s most onerous barriers associated with the creation of and issuance of bonds tied to IFDs.

    Recent Build California Bond (BCB) program legislation, SB 867 (Padilla), would have authorized $5 billion in bonds (up to $1 billion per year for five years) to be issued through the California Transportation Financing Authority (CTFA). Essentially, under this (SB 867) proposed BCB program, CTFA would enter into financing agreements with local transportation agencies to finance highway and transit projects. The bonds would have a 30-year maximum maturity, local sources, e.g., revenue from Measure R’s ½-cent sales tax in L.A. County’s case, would be used to repay the bond principal, and the interest would be subsidized by the state in the form of annual tax credits to bondholders not to exceed $250 million per year. The tax credits could be applied against California personal income or corporate income tax; they are non-refundable; and the credits could be carried forward for up to 10 years.

    As far as BCB program benefits, it was noted in a 2011 LAEDC report that such a qualified transportation improvement bond program would – for LA County’s 30/10 program only – cost the state $705 million and would generate nearly $1.2 billion (in state revenues) more quickly than in the current 30-year timeframe contemplated under Measure R. In short, creating a state tax credit BCB program would allow self-help regions, e.g., L.A. and Orange Counties, to accelerate large-scale, critical transit and transportation programs, which in turn would greatly increase the speed at which we are able to realize important (self-help region) program benefits, including: markedly positive economic, fiscal and job impacts from our major infrastructure construction projects and our ability to move people and goods more efficiently; the increased value and vitality of our transportation/transit systems (along with increased overall transit ridership); and other positive environmental and quality of life benefits stemming from improvements to regional transportation systems, including, for example, lower greenhouse gas emissions from reducing vehicle miles traveled.

    Though not as bold as instituting a qualified infrastructure improvement bond program, Infrastructure Financing Districts (IFDs) are formed over a geographically defined area and use tax increment to finance authorized public facilities. However, only a few IFDs have been formed in CA even though the law has been on the books for over 20 years for the simple reason that an IFD must be approved by two-thirds of the qualified electors and may issue bonds only if approved by two-thirds of the qualified electors.

    As you know, there was a recent bill, SB 214 (Wolk), which many Coalition members supported publicly, that would have reformed the IFD law by eliminating some the law’s most restrictive proscriptions, including:
    - Removing the two-thirds vote requirement associated with forming an IFD;
    - Removing the two-thirds vote requirement for issuing IFD-associated bonds;
    - Extending the life of an IFD from 30 years to 40 years, which increases an IFD’s bonding capacity; and
    - Removing the prohibition against an IFD including any portion of a redevelopment project area.

    Procedurally, SB 214 (though enacted by the Legislature) was vetoed by the Governor, with a message stating, in part: "Expanding the scope of infrastructure financing districts is premature… this measure would likely cause cities to focus their efforts on using the new tools provided by the measure instead of winding down redevelopment." Structural changes to the IFD law must be made for this tool to be used extensively, and so, we hope (and expect based on the Governor’s veto message) that IFD law reform will be taken up as soon as the issues surrounding redevelopment’s wind-down are resolved.

    RECOMMENDATIONS:

    - Urge the Legislature to pass and the Governor to sign (now that RDAs are fast winding down) legislation that would remove barriers in forming and issuing bonds associated with an Infrastructure Financing District.
    - Urge the Legislature to pass a qualified infrastructure improvement bond program (similar to SB 867) to help self-help regions throughout CA finance and accelerate infrastructure delivery and to help address California’s overall infrastructure funding deficit.

  5. Fully Implement and Strengthen SB 617 (Calderon/Pavley)
  6. On October 6, 2011, Governor Brown signed into law SB 617, which set forth a statutory requirement for standardized regulatory impact analyses of “major” regulations (i.e., those exceeding $50 million) that will be adopted, amended or repealed on or after November 1, 2013. The bill also requires that the Department of Finance adopt regulations for conducting these impact analyses by November 1, 2013.

    The passage of SB 617 was certainly a step in the right direction, but it simply does not go far enough. Shortly after the adoption of SB 617, the Little Hoover Commission released a report titled Better Regulation: Improving California’s Rulemaking Process, which encourages the State’s regulatory reform efforts to go even further.

    Specifically, the report recommends, in addition to standardized impact analysis of major regulations (set forth in SB 617), the following:
    - Recommendation 1: The state should require departments promulgating regulations or rules that impose costs on individuals, businesses or government entities to perform an economic assessment that takes into account costs that will be incurred and benefits that will result.
    - Recommendation 2: The state should create guidelines that set out standards and the appropriate use of different types of economic assessment methodologies and data quality that can be used to properly describe and analyze the economic impact of new regulations. The use of these guidelines should be mandated by the Administrative Procedure Act.
    - Recommendation 3: To improve the quality of regulations promulgated by California agencies, and to ensure the process of developing regulations is consistent and transparent, the Governor should form an Office of Economic and Regulatory Analysis.
    - Recommendation 4: The state should create a look-back mechanism to determine whether regulations are still needed and whether they work.

    RECOMMENDATIONS:

    Urge the Legislature and Governor to fully implement SB 617 and adopt the other recommendations proposed in the Little Hoover Commission report.

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